Arcotia Hatsidimitris - International Tax Dialogue

8. TRANSFER PRICING AND DEVELOPING COUNTRIES – 69
will help them to devise and implement transfer pricing rules suited to their strategic needs and their
particular environment. The first difficulty is how to devise rules without having a full knowledge of the
issues to be addressed and the problems that can arise. Learning from the experience of others is important
in this context as even the most sophisticated transfer pricing regimes started in a modest way and were
built up over time (many OECD countries had limited transfer pricing expertise in the 1970’s and ‘80’s).
And best practice in transfer pricing is dynamic as it adapts to changes in the commercial environment that
have been discussed in this report. While there is no one size fits all solution, nonetheless there are
available guide legislation and regulations (the OECD has developed model legislation that can form the
basis of new laws in developing countries) which developing countries can use as a starting point to
develop their own rules and practices.
Developing countries need to create a compliance regime that is proportionate to perceived risks,
realistic in terms of its impact, and takes account of available capacity and capability. Developing countries
will want to ensure that their tax administrations collect the right amount of tax; counter abusive transfer
pricing tax planning, and create a predictable business climate, without double taxation wherever possible.
An important first step is to put in place the necessary legislative framework-transfer pricing and thin
capitalisation rules in particular. It is also important to take a practical approach; while expertise in these
areas takes some time to build up it is important to make a start, tackling actual cases and developing the
practical skills that are as important as an understanding of the principles of international taxation. And
often tackling what is seen as “complex transfer pricing” may be relatively straight forward, for example, if
a company is paying for goods and services (such as Head Office costs) when it has not received any real
value, the cost may be disallowable on first principles.
An early aspiration for developing countries should be to ensure that they have put in place with their
main trading partners double taxation agreements with effective exchange of information provisions and
domestic laws that enable them to secure necessary information and documentation. Developing countries
will also want to make use of the internationally agreed principles of the OECD Transfer Pricing
Guidelines to help in the struggle to stop the transfer of profits abroad while curtailing the double taxation
of profits for international groups.
Meeting the challenges
Training and development of people
Almost all the challenges referred to in the earlier chapters of this study apply to developing countries.
Major accounting and law firms may also have limited resource in some developing countries but can call
on their global resources if necessary to ensure they have all the expertise needed to handle transfer pricing
cases whereas tax administrations can find themselves stretched by the complexity of cases, the lack of
industry knowledge on the part of their people and a shortfall in relevant skills. These issues are often
much more significant in developing countries.
The African Tax Administration Forum (ATAF), set up by 34 African Tax Commissioners to provide
an African voice in taxation and promote learning and skills in African tax administrations, recognises lack
of capacity and capability as a critical issue for developing countries. But there are examples of transfer
pricing teams with the right mix of skills and tax administrations that have structured themselves to
maximise the effectiveness of their transfer pricing resources. ATAF’s members want to draw on the
extensive and varied experience of developing and developed countries alike in building transfer pricing
teams and how to position those teams within the tax administration.
ATAF also recognises that there is a lack of transfer pricing skills and experience in many of their
member countries and sees a critical need to build those skills as quickly as possible. They envisage this
DEALING EFFECTIVELY WITH THE CHALLENGES OF TRANSFER PRICING © OECD 2012